Over the past year there has been an encouraging degree of progress regarding changes which funds, charities and third sector employers (among others) have been pressing for in relation to the Local Government Pension Scheme (LGPS) in Scotland.
The current problem
Currently, charities or employers which are struggling with their liabilities must keep at least one employee in pensionable service within the LGPS to avoid automatically triggering a cessation debt on a “gilts basis” – which is unaffordable to the vast majority of employers.
Alternatively, employers can attempt to agree a “suspension notice” – which has been rarely used in practice – or hope that the Administrating Authority (the “Fund”) in question is willing to take an open-minded approach in addressing these challenging issues within the constraints of the current legislation.
Consultation – Deferred Debt Agreements
The Scottish Public Pension Agency (the “SPPA”) has initiated a Consultation on changes to The Local Government Pension Scheme (Scotland) Regulations 2018 (the “LGPS Regulations”) which could greatly assist charities and third sector organisations and give clarity to Funds. These changes mirror those introduced in England and Wales in 2020.
Benefit for employers
The proposed amendments would allow parties to enter into a “deferred debt” agreement and also to spread exit payments over a period determined by the Fund. Importantly those employers would be able to benefit from improved funding positions and manage their liabilities over a longer period of time.
Protection for the Funds
In making it easier for employers to remain within the LGPS (but without building up further pension accrual), protections for the Funds have also been built in (including being able to make an adjustment to the employer’s contribution rate prior to any given triennial valuation cycle). In particular the Fund and the actuary would have the power to adjust the employer’s contribution rate if:
- “the amount of the liabilities arising or likely to arise has changed significantly”;
- “there has been a significant change in the ability of the Scheme employer or employers to meet the obligations of employers in the Scheme”; or
- “a Scheme employer or employers have requested a review of Scheme employer contributions and have undertaken to meet the costs of that review”.
Wider Changes – Deferred Member Early Retirement without consent and Survivor Pensions
The Consultation has also proposed rules allowing deferred members of earlier schemes, who meet certain conditions, to elect for early payment of their benefits between age 55 and 60 without needing their former employer’s consent.
Finally, the Consultation is seeking to clarify and amend the calculation of Survivor Partner pensions (including for cohabiting partners) so that members are placed in a similar position to female survivors of male married members in order to comply with recent equality judgements.
Any Consultation responses are required by 7 January 2022.
This is a welcome and progressive development which will help many charity and third sector organisations in Scotland. In the meantime, employers should get advice if they are considering how to manage and address their LGPS liabilities. We will provide a further update once the amendment to the Regulations are finalised.